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Court Ruling Clarifies Franchise Tax Rules Surrounding Telecommuters


March 30, 2012
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A recent court ruling clarified that even businesses who only have remote employees working in the Garden State are still bound by New Jersey tax law. The case involved a Maryland software company called Telebright. The company had an employee who started working at the company’s headquarters in Maryland, but then moved to New Jersey and telecommuted full-time. (Read our previous post here) The state’s Corporation Business Tax specifies that all companies that do business in the state are subject to the tax, and comprehensively defines doing business in the state as “all activities which occupy the time or labor of men for profit.” Because of that, Telebright’s one remote New Jersey worker left the company liable for New Jersey business taxes. Analysis from CFO Magazine said that the ruling essentially viewed telecommuting workers contributing to larger projects in the same light as someone making physical parts for a product that will be assembled somewhere else. While the ruling specifically dealt with the enforcement of New Jersey tax law, close wording also exists in the regulations created by other states. For example, New York business law contains very similar language, stating that foreign corporations must pay a franchise tax if they do business, employ capital, own or lease property or have an office in the state. Adding even more complications, the situation may also create tax compliance problems for businesses that they may not be aware of until much later. In some cases, it’s possible employees who regularly telecommute may not notify the company if they move to another state on either a temporary or permanent basis, creating tax liabilities in that state without knowing it. Once the situation has been discovered, companies would need to go backward to determine their specific tax liabilities for that remote worker. Extract:  A recent court ruling clarified that even businesses who only have remote employees working in the Garden State are still bound by New Jersey tax law.